Wednesday, December 12, 2012

The non-partisan National Taxpayers Union has sent an open letter to Congress, signed by 185 economist, to date, urging them to vote against any tax hikes and warning that "increasing taxes" as part of the fiscal cliff negotiations, "would likely slow or reverse our nation's fragile economic recovery and undermine long-term growth."

The NTU, who organized the letter, stresses that allowing tax rates to rise for anyone in a fiscal cliff deal “would have a significant, negative impact on the economy.”

“At this critical point for our nation’s financial future, the strong
support from so many economists for a cautious approach to tax hikes
and for meaningful spending restraint should serve as a clear warning to
Congress,” said NTU Executive Vice President Pete Sepp. “Resorting to
tax hikes, particularly without budget or entitlement reform, is not
just a raw deal for taxpayers, it’s also a losing hand for the American
economy.”

In their statement, the diverse group of 185 members of the economics
community advised against allowing the 2001 and 2003 tax relief laws
expire for “some or all taxpayers.” They further contended broad tax and
budget reform offers a better route that would avoid the negative
consequences, such as job losses, of short-term revenue grabs:

“Low taxes can have a constructive
economic effect by keeping money in the private sector, where it is far
more likely to be utilized for efficient purposes. By contrast, raising
taxes would divert resources into the relatively inefficient public
sector, thereby curbing potential job creation and economic growth. This
effect would be even more pronounced during a persistent slump.

“In particular, Congress should avoid
raising marginal tax rates on income and taxes on investment, such as
capital gains and dividends taxes. These types of taxes most directly
and meaningfully affect job creation.”

The signers included former Congressional Budget Office Director (and
current American Action Forum President) Douglas Holtz-Eakin; former
Office of Management and Budget Director Jim Miller; as well as scholars
from a variety of academic entities, including the University of
Michigan, University of Chicago, UCLA, University of Virginia, Emory
University, Georgetown, Pomona College, and the Wharton School at
University of Pennsylvania (affiliations on the letter were listed for
identification purposes only). Signatories with other institutions
included Donald Luskin of Trend Macrolytics, Richard W. Rahn of the
Institute of Global Economic Growth, David J. Theroux of the Independent
Institute, and David G. Tuerck of the Beacon Hill Institute at Suffolk
University.

Sepp concluded, “Economists are becoming increasingly concerned that
unless Washington stops gambling with other people’s money and gets the
federal government’s own finances in order, the odds for a more
prosperous year ahead will get much slimmer. Taxpayers would agree.”

Letter and signatories below:

Fiscal Cliff Tax Hikes Risk Economic Damage.

An open letter to Congress:

December 11, 2012

Dear Members of Congress:

As the nation approaches the so-called "fiscal cliff," we, the
undersigned economists, urge Congress to carefully consider the relative
merits of tax increases and spending restraint. Increasing taxes would
likely slow or reverse our nation's fragile economic recovery and
undermine long-term growth. Restraining the growth of expenditures,
however, would help stabilize the government's fiscal imbalance and
create a more conducive environment for robust expansion.

Some in Congress have advocated allowing the 2001 and 2003 taxpayer
relief laws to expire for some or all taxpayers. Such an action would
have a significant, negative impact on the economy. Low taxes can have a
constructive economic effect by keeping money in the private sector,
where it is far more likely to be utilized for efficient purposes. By
contrast, raising taxes would divert resources into the relatively
inefficient public sector, thereby curbing potential job creation and
economic growth. This effect would be even more pronounced during a
persistent slump.

In particular, Congress should avoid raising marginal tax rates on
income and taxes on investment, such as capital gains and dividends
taxes. These types of taxes most directly and meaningfully affect job
creation.

Additionally, lawmakers must resist other destructive proposals that
would boost effective tax burdens, such as curtailing itemized
deductions for higher earners or imposing discriminatory taxes on energy
or other industries. Such policies are merely revenue-raising ploys
when executed outside the context of comprehensive tax reform that
includes correspondingly lower marginal rates. And like other tax
increases, they would serve as inadequate substitutes to much-needed
spending restraint.

While some Members of Congress are concerned about the short-term
impacts of slowing the growth of federal expenditures, they must uphold
their commitment to the American people to address the alarming
trajectory of U.S. spending and borrowing. There are more tangible
benefits to consider as well: research has shown that spending restraint
is superior to tax increases for both deficit reduction and long-term
economic vitality. This has proven true in many other developed nations
that have implemented fiscal adjustments.

To best foster a strong economy, Congress should ultimately create a
simpler system of taxation with a broader base and low rates on income
and investment. Simultaneously, it should prioritize government programs
and pursue entitlement reforms that bring the budget to sustainable
balance. Individuals and businesses are depending on -- and deserve --
greater certainty in policy making that affects their everyday financial
decisions.